Now that silver continues hitting nominal high after high (except of course for the record price hit during the Hunt Bros period), and there is a very distinct possibility we may see an unprecedented melt up in the price of silver to over triple digits for a variety of previously discussed factors, here is a post we produced a year earlier, courtesy of a "deep insider" which dissects with exquisite detail the nuances of silver market manipulation, which in retrospect may have been just a little early. Considering that every single trope mentioned is now in play (even the unmasking of Buffett's unbelievable PM bashing hypocrisy when he himself was one of the people who utilized blatant silver market manipulation for his own purposes when it suited him back in 1997 to send silver soaring), we believe readers should re-read this post in its entirety as it presents a walk-thru for the mechanics, and strategy, of the ongoing unprecedented move higher in the shiny metal.

As the topic of physical delivery has gained prominent attention
recently, it is crucial to complete the circle and show how this
weakest link in the PM market is (ab)used by the big boys: Phibro and
Warren Buffet. Pay particular attention to the analogues between the
methods employed in the 90's commodity market and how the PM (and
equity) market is being gamed currently. And to think that each new
generation of traders believes it has discovered something new... (All emphasis below is ours)

Background

As
a market maker in silver options from 1989 to 2000 I was present during
both the 1994 and 1997 silver events. They were seminal in my education
of gamesmanship in trading and how probabilities can come up short.

Prior
to going out on my own, I traded at a small market making firm. When a
trader finished training there, he had top-tier options knowledge but
was not educated in whom the players were, the fundamentals of the
markets, and how probabilities were useless when information was
asymmetric. That wasn’t their business, they taught option’s theory.
Since I had drunk the kool-aid, I thought fundamentals and gamesmanship
were useless in the face of the almighty Standard Deviation model. That
was a mistake.

Phibro Early Exercise

In
April 1994, the Thursday before Easter, the trading day ended with a
rather unusual run up of 15 cents near the close to finish at 435ish
around noon. Options expired that day at 4pm but we weren’t anywhere
near the closest strikes (425 and 450) so most of us left. It was a 4
day weekend in the U.S. but silver traded globally, albeit il-liquidly
in Asia. Comex wouldn’t open until next Tuesday. My education in
gamesmanship started that afternoon at JFK airport as I was waiting for a
flight, my first vacation in 5 years.

My backer paged me at the
airport to inform me that someone was exercising the K 450 calls. I
scoffed thinking it was a retail sap that was talked into exercising
some 5 lot piece by an overzealous broker. “Great I said, let them, the
options are out of the money.” And I hung up

10 minutes later
he had me paged again. “You don’t understand, it’s Phibro exercising.”
Again I naively said, “So what, they are energy guys.” But I was
curious, “How many? “ I asked. “All of them, five thousand, he replied.
Now I was really curious, but still woefully ignorant that it was I who
was the sap at the table. “Why would they do that?” and he explained it
to me. I nearly shit myself and bent over in the cab vomiting on the
ride back.

Cancelling my trip, I headed back to the office to
assess the reality of what would happen, probabilities were no longer
important. Survival was important. I had no money and was trading on a
$25k note lent to me by my backer.

We covered by buying futures
on my entire short open Interest equivalent of EXPIRED OUT OF THE MONEY
OPTIONS in Singapore with a dealing firm. We did this prior to even
actually knowing if I was exercised, probabilities be damned. How did I
know they exercised? The price covered at was $462; that is how. The
450s were already in the money by 12 cents.

Phibro exercised all
5k lots. I had a fraction of that but big enough to be carried out on a
stretcher had the rest of my position not bailed me out/ performed on
Tuesday next week.

The weird part was, the market stabilized
that Tuesday and did not run to “infinity” as it could easily have. We
found out later it was because Phibro’s exercise was a no-no and Warren
Buffet ordered them to shut the trade down as it was too big of a
potential scandal. Especially in light of his coming to Solly’s rescue
and lending his good name to fix their most recent Treasury scandal. A
couple head’s rolled there if I remember correctly.

My guess was
that the client was a Buffet or Soros type. Someone that would only go
to Phibro, as these guys were the best at preventing information
leakage, and always aligned themselves with client interests, where as
if IB had an order and acted in dual capacity as a dealer, he would
potentially front-run the order or stop it out poorly on an exit. Phibro
didn’t take other side of their client’s orders. They ran with them,
and took care of the clients first.

Phibro got a big order for a
client to buy silver, one that had to be handled expertly, and filled
over time, no information leakage would be tolerated. These guys were a
prop desk that took orders as brokers once in a while.

They accumulated options for their own account (K 450C) to piggyback but not front-run the client.

They must have bought futures for themselves as well as the client with his permission.

They beat the VWAP by gunning the market on light volumes 1 hour before a 4 day US holiday. [TD: compare and contrast with the daily patterns seen every single day in the endless move up in the S&P]

They
exercised the 450 Calls that day and then lifted the offers of the 1 or
2 OTC metals dealers left open during Singapore hours, running them
over during illiquid markets.

Never Again!

I became infatuated with Phibro gamesmanship and made it a point to understand that particular type of player.

Libertarian
Darwinist that I was I did not blame them. At the time It was a
buyer-beware market for big businesses and they did nothing wrong. They
took risk and they aren’t bigger than the market. I wanted to play with
the big boys, and that was the price.

For me it was about
learning how to read the signs and not be on the wrong side of one of
those events again, even if I was not privy to their meetings.

Here is some of what I learned:

In
metals (and energy and anything else with an OTC market) the IB firms
have dealing desks along GS, MS, Republic, JPMorgan, Scotia Mocatta, all
were essentially broker dealers in precious metals. All had clients:
miners who hedged production and hedge funds who speculated OTC. They
provided liquidity by taking the other side of their client’s trade and
“back-to-backing” them in the futures markets or held onto them in their
prop books as counterparty because of something else they saw.

Their
client left resting orders with them in the IB’s Central Limit Order
Book (CLOB) which served as good information to trade around for the IB.Sometimes they front-ran the client, other times they go for stops to force the client to puke. Sometimes they’d just make markets, depending on many things. It was poker to them.

Phibro
was different. These were smart guys but they weren’t a dealing bank.
They exploited imbalances in markets and took positions. They had
ideas. They also took orders for heavyweights who needed absolute
discretion. They did not make it their business to fleece their own
clients and instead aligned their interests. And they made the banks
look like pikers when a client came to them with an order.

For
the next 4 Years I paid attention to how those dealing banks and phibro
played the markets. It was all about gamesmanship, Bayesian probability,
and knowing your counterparty’s motivation with these guys. Information
and misinformation.

Some methods:

How
I.B firms would use a thinly traded floor to print the price that would
trigger a massive stop loss in the OTC markets and bury their own
clients. Or how they would buy for their own accounts in front of
resting limit orders for clients and simply use their clients to stop
themselves out if the market printed thru their buy levels. Or how they
would use dual representation to show loudly they were buyers on one
side of the ring, while they were selling quietly upstairs to other OTC
dealers. Trading with themselves in multiple entities, etc.

An
IB with a Commodity Index was in heaven. Prop trading, captive client
flow from IB deals and OTC dealing and Brokerage. The good ones knew how
to integrate and hedge macro risks, whether to front run their own
index clients or get out off their way. “Chinese walls” did not exist
in Commods.

Commods were mostly self regulated and that lead to predatory yet mostly legal behaviour.

Some
of these were necessary to protect their interests with such a small
number of players. Some were possibly unethical, but most were legal.
Their clients were all big boys who left resting orders with the IBs at
their own risk. Clients themselves had to resort to some of the same
tricks to keep the IB desks honest, like Coming in backwards,
“spoofing”, leaving buy stops to get sell orders filled. The alternative
for these clients was to put massive orders in the floor where
liquidity was subjective, non continuous and information leakage was
massive.

1997- Warren Buffet.

I got my chance to not get run over in 1997, when Warren Buffet gave an order to Phibro to buy silver.

Short version. Here is what went down.

Buffet gives Phibro the order- fact

Phibro
begins filling it as a broker using various OTC dealers as
counterparties, and letting the I.B dealers sweat getting out of the
risk. - fact

Phibro buys options for their own account (no exercise game this time tho)- fact

Phibro buys futures for their own account. – not confirmed.

One
by one the IB dealers start to catch on that this is no ordinary order
Phibro is handling. They back away and liquidity gets harder to find.-
fact

Other bigger hedge funds in the small circle of professionals, and other smart firms start getting long.- fact

Silver
starts getting delivered from the Comex vaults. Some of it actually
removed. Some of it just “covered with a sheet” for removal. But ounces
begin to be removed from the warehouse. Phibro was rumored to be taking
delivery and beginning to telegraph fear in the markets to start
spoofing the VWAP. Rumor was they had a warehouse in Red Hook where they
stored it. Never confirmed.

Point here is, the saps for the
last part of this play were the producers and refiners who were
complacently net short and dependent on above ground silver to satisfy
delivery requests.

Producers had been over-hedging for years in
this market, as silver was cheap and they had business cash flow issues.
It was their habit to sell forward production not yet available to
them. And if forced to, they would lease already above ground silver and
make delivery, collateralizing it with silver yet to be mined. Their
positions were habitually synthetically long the contango as they rolled
their deliverable production further and further out the curve in an
attempt to squeeze much needed cash (cost of carry)for their businesses.
The net effect was that sometimes they had to borrow silver for prompt
delivery while they rolled their production hedge back further. – my
interpretation of what I learned. May not be accurate to the “T”, am not
a physical guy.

Example: in 1995 a miner has silver due above
ground in 1997. He hedges it in Z-1997 contract. Z 1997 comes and if he
doesn’t have that silver available for some other reason; he covers the
short and rolls it back. How much he needs to do this is a function of
his obligations, cash flows, and his greed for carry. If leases are
cheap, he will seek to capture all the contango and lease it until he
gets the silver available.

If lease rates go up, it is not
unlike a miner strike. Silver is needed for delivery now, and term risk
becomes the issue. Contango collapses and market goes backwardated. He
will be forced to sell the contango to get that prompt silver short back
if he cannot make delivery. He has to defer delivery.

These guys were dependent on the specs NOT taking delivery for years. Specs didn’t have balance sheets to take and store physical metal. Specs usually were the weak hands at futures expiry.

But then…..Entities
that stored silver in bank vaults (like the Republic vault) begin to
remove silver from the available pool for leasing. This made the “easy
money” portion of production financing no longer easy. Think: smart
money getting the word that a squeeze was on and playing along with it.

Phibro
(and others) start selling the contango in the futures market to
prepare to take delivery of even more contracts. Or at least put
pressure on the producers who had front month shorts they would have to
make a decision on delivering. Phibro KNEW that the producers had to
sell the spreads to get their shorts back. But they couldn’t lift their
shorts altogether as part of their financing deals with their bankers.
Their own positions were now breaking down in every way except flat
price. The market really didn’t move much. This let them stay in denial.

Buffet announces he is long and intends to take delivery of silver. Contango collapses. Market spikes to 7.40.

Rumor
is gov’t intercedes and asks Buffet to not do this, it would break the
industry. (Kind of like how the exchange begged the gov’t to help it
shut down the Hunt Bros.) He says ok, and agrees to lend then their
silver back to them. Essentially charging them 40% interest to delay
delivery for a year.

What to look for:

Find the overleveraged/ extended party- and you will find the weak hand at the table. (Producers in 1997)

Tail
wags dog: if the pricing venue trades smaller volume than the OTC, then
manipulate price with small volumes to execute trades with big volumes
favorably. (OTC vs Comex floor)

Divide and conquer- if
counterparties are undercapitalized and/ or fragmented, then it will be
easier to get them to move like a herd. (happens in options ALL THE
TIME at expiration)

Manipulate data- take delivery of metal, take risk off books, manipulate MTM data.

Create
an exit strategy- a good catalyst like Easter weekend, an announcement
by an investor etc. or develop a market and grow your own bigger fool.
ie – retail.

Comments - So many points to make here:

How
derivative markets can create a problem thru too much liquidity that
cannot easily be reconciled by bringing physical production on line fast
enough.

How this works both ways, and that dealing banks have
been playing the gold/silver carry game for easy funding of other trades
for years.

How, even though I personally think that what the
OTC does is their own business, but the increasing securitization of
commodities leaves regulatory arbitrage and OTC games to affect a new
generation of ETF buyers, either thru incremental banking or thru
contango cancer. That Wall Street salesmen and players with
access to both markets retail and professional can exploit the captive
audience created with ETFs and other fund type instruments to shear and
in some cases skin the sheep.

That much of this happens
because the gov’t is too stupid to see the inherent conflict of
interest in what a broker-dealer does. Regulation will not stop gaming
the law. Ethics do, and not everybody has ethics. So best you
can do is prevent situations of conflict of interest, like the existence
of Broker-dealer type entities. Either you trade for yourself, or you
trade for others. Period.

Fact is, if there were retail
public in this game back then, the IB firms would have somehow sold
them on the idea to BUY contango, or short silver. But the
financialization of commodities wasn’t there yet. And the “bigger fool”
game stopped at the producers. If it happened again, with ETFs, cross
regulatory semi fungible products, asymmetric access to venues and other
factors in a global market, the public would be killed, short squeeze
or long puke (like in UNG now) take your pick.

You can never
know intentions, and no one is bigger than the market, but the
consequences of a lack of transparency and the free reign in which banks
can tell half-truths to investors is a big factor in enabling strong
hands to fleece weak hands with little market risk. It’s all a con game.And when the IBs figured out how to change the rules, then they
were free to use their killer techniques to exploit a million little
fish instead of the 10 big fish they usually competed with.

Phibro
was a ballsy cowboy trading firm. The banks at the employee level are
as well, but corporately, they first seek to make money and secondly
provide a service. When they should be providing a service that makes
money.

Everything that was done I’ve seen done the other
way, keeping prices low, shaking out weaker players. Rarely does it
happen in such a dramatic way. It is usually a series of “short cons” as
opposed to Phibro’s home run. It’s all Darwinism. But when civilians
are involved as they are now, then it is no longer caveat emptor.

Instead of taking a million dollars from a hedge fund, these guys take a dollar from a million people now.

A delivery boy can't tell the difference between the people he talks to.

I don't give a shit about dollar denominated debt one way or another, nor do I care to read about your position on it. I just don't care what you think, because you are just another loser who does nothing but lose money and deliver the occasional sofa set.

I am under no obligation to indulge the likes of you. All you do is lose. Lose that money. Good thing you have a "friend" who throws you money, otherwise the only "loads" you would be delivering would be around the back of the local 7-11. In fact, I'm not convinced that isn't the case.

The dollar is not crashing. No hyperinflation. Central banks, the global banking system, businesses, people all owe debt's in dollars. They can't pay back dollar debt's with yuan , euro's , they must borrow more dollars so they can service said debt's. They all continue issuing " new " dollar denominated debt's yesterday, today and will do the same thing tomorrow....

This insures a thirst / need for dollars for many, many, many years ............ No crash looming with this need.

So as the things start getting better ( housing will rebound at some point, ect ....... ) And with no crash coming for the dollar this means gold / silver are in a bubble, sure silver / gold has been up before and guess what like everything else they will drop again. This time is not different , the dollar is not losing the reserve status. One quadrillion of obligations , not enough gold in the solar system that can support 1 quadrillion this is why the dumped said dollar in the first place. They built a global web of forex trade / finance / global banking / fiat /letters of credit ect ... ....

Speaking of avoiding arguments, you did not acknowledge my question of the 2.5% rise in crude, today alone. This would eliminate almost a year's worth of interest on a 5-year UST.

You completely fail to acknowledge that there are other factors that are impacting the supply of dollars. Over-supply of dollars is causing them to depreciate. Thirst for dollars? Nah.

Things start getting better? Where? And then you argue that there's so many obligations it cannot crash? Huh? I could quote substantial history that EVERY fiat system has collapsed. We've defaulted on the dollar twice this century alone.

Always been an over supply of dollars 1 quadrillion, no, its the global reserve currency, many dollars needed / wanted.. So Ben's QE3 will do the trick now, everyones about to run from the dollar , now .............. ???

What about oil, its a ( trade / bet hedge funds ect ......) like everything else, the big boys trade it. Not Ben's problem. Also all the suppression via dollar peg's force those countries to purchase more and more dollars.

.................. " Take the most obvious example, the PBoC itself. The central bank officially has about $2.5 trillion in reserves. This by the way almost certainly understates its true position but let’s ignore that for a moment. The PBoC has funded this position with an equivalent amount of RMB liabilities, which makes it very vulnerable to changes in the value of the currency.

Rate addiction

In fact there were strong rumors last year that the PBoC was technically insolvent as a consequence of the 20% increase in the value of the RMB against the dollar during the 2005-08 period of currency appreciation. Weirdly enough, although the numbers are huge, it has proven difficult to convince anyone that the PBoC is not the richest institution in the world, and that it is actually very vulnerable to big losses (although I notice that Sovereign Trends’ Terrence Keeley, in an OpEd in the Financial Times Tuesday, seems also to have done the numbers).

The problem for the PBoC occurs not just because of the currency mismatch but also because it needs repressed funding costs to keep it profitable. How much do the PBoC foreign currency assets earn? I would guess probably between 3% and 4%, maybe less. The RMB funding cost, on the other hand, is roughly between 1.5% and 2.5%. This leaves the PBoC with a net positive carry of between 1% and 2%.

If the RMB appreciates by as little as 2% a year, in other words, the PBoC runs a negative carry on its assets. Every further 1% increase in interest rates, or additional 1% rise in the value of the RMB, then, erodes its capital by at least $25 billion (annually, if it happens through an increase in interest rates).

Let’s assume, for example, that over the next two years we see a combined appreciation and interest rate increase of 10% (let’s say a 2% increase in interest rates and a 4% annual appreciation), which is, in my opinion, the absolute minimum that China must do to slow down the worsening domestic imbalances. Assuming no change in the rate earned on reserve assets, which in fact may decline, this means that the PBoC’s net indebtedness would rise by over $250 billion, or roughly 5% of the country’s GDP.

These kinds of number quickly add up. And of course it is not just the PBoC that has this addiction to repressed interest rates. Many years of very low cost borrowing has created a huge dependency on low interest rates among SOEs, local governments, and other creditors of the bond markets and the banks (not to mention the banks themselves), all of whom are directly or indirectly funded by long-suffering households. " ....................

Now who's laughing , the suppressed rates force them to take our global currencies inflation. Inflation is a much bigger issue for all the countries around the globe. Just like we sold off bad debt ( cdp's-siv's ) on a global scale now because of the peg's we export our inflation.

So you rest your case on the Chinese situation being completely unsustainable, and hence the status quo is sustainable???

Once the Chinese breaks the peg, yeah they'll have hard times coming up. Exports will drop. Imports will in relative terms become cheaper, however. Regardless, they run a substantial surplus, and can most likely cushion the fall.

The US, however, will see the price of imports skyrocket, especially necessities like oil. And since she runs large deficits, with huge debts, will find it extremely hard to raise the capital in the open markets. You're not actually that naive you think the Dollar will still be the reserve currency when this happens, right? It most certainly won't, and hence, the US can't simply print the shortfall.

You forgot to mention how, despite having to acquire Dollars for the trade, which will boost the worth of the Dollar, the transaction is in fact entirely sterile, as the acquired Dollars will all be sold off at the other end of the transaction. So, in fact, the Dollar is both strengthened, and neutral, depending on which bollocks statement you post.

That, and all the other great Bernanke lullabys.

/I don't know wtf's going on, I was wasting my time replying to Spalding, your post wasn't even up when I replied. And it's not the first time I see these oddities.

People have debt in dollars, therefore, no hyperinflation? Guess who else has debt in dollars? The government. Guess who has political control over the printing press? The government. Guess who has been printing like mad to fund Keynesian projects? The government+ the Fed.

You make no argument to deal with all the money coming from the Fed. You WOULD be correct if the Fed wasn't printing money. All the new money that comes from debt issuance would be destroyed upon repayment of the debt (except for defaulters, which is how inflation from this money source stays in the system).

What you don't understand is that the Fed has been printing money. That money has been given to various people who through various means of varyingly questionable legality, and has found its way into the stock and bond markets, and into commodities. This is causing SOME inflation. Not the hyper variety just yet. Where that comes from is when the market sees all this money printing going on. The market (including sovereign wealth funds) realizes that they are being diluted out of all their dollar denominated assets. So they buy real stuff, like gold, silver, and FOOD on the commodities exchanges. This drives the prices of these things sky high.

Now you ask yourself "So what?" A few people starve, and everything goes back to normal, right? WRONG. You really think the Feds are going to allow people to starve in the streets? You think they are going to stand for $10/gallon gasoline? You think they are going to stand for the elderly freezing to death in the winter because they can't afford heating oil? NO! So instead, they print more money to distribute to the general public, to "save" them. This is where the wheelbarrows full of money come in. This reinforces the vicious cycle where more money printing begets more money printing, until everything falls apart.

The Dollar is dropping with rising geopolitical instability. That's a first. It's usually a flight to safety, but what we see now should frankly make even the most ardent, biased, Bernanke cock-gobbling ZH poster take notice.

Every fucking moron speaks of hyperinflation. When, when does it start ? When .......... We have been printing for years ? When's it starting, if you were right it already would have started. Everyone knows the dollar count over 1 quadrillion, whats the tipping point / sudden stop / timeline ... ? Or are you just guessing ?

So everyones buy " things " because they don't want the dollar .... ? Like I said type in " dollar denominated debt into google search news. Everyone tripping over them selves issuing new debt.

I care about the poor, but its not Ben's fucking problem. They can break the peg, its the host countries problem if they are importing inflation. Break the peg, no inflation. But the real question is " what are they waiting for ? ". The answer, they can't break the peg, the host banks / businesses depend on suppressed borrowing rates.

They all have fiat ( below ) the dollar , dollar falls , guess what they all implode first Brazil , Russia , China , Japan ... So now we are talking ( global reset ) I never said that could not happen. But you will never see the world extract from the dollar obligations without causing armageddon. They can't just stop buying and move onto another currency / basket without a total blowout. China would implode , ect they do not want this they want the status quo -

You can splash your fingerpaints and green linen confetti all over the subject here, but in the end it is a logical as well as indisputable historical fact that overspending governments with exponentially expanding debt end up devaluing or destroying their (fiat) currencies --- EVERY one, without exception. The USA will be no different.

Go learn a little history, then come back here before you spout off relentlessly expounding on topics of which you clearly understand exceedingly little.

Tell me how I'm wrong. But its o.k. if all the doomers call for a dollar crash day after day but yet it never happens . Once again, pull out a 10 years dollar chart. What massive dollar crash, after the largest credit implosion in currency history. Trillions. What crash .... But its coming, right, it's coming SOME DAY SOON.... Lol •

Yah, the dollar is doing great. Down 70% against silver. Down the hardest it's ever been against gold. Shit, even against its equally worthless peers its lost 15% since last june. Yep, things are going great for the good ol' USD.

Try buying some equipment from Cat with gold or some oil. Try buying gas at the local gas station.

Open your eyes, can gold support global trade or the forex market ? Can it support all the global transactions that happen day in day out. Nope.

What , about 5% of the global population even have gold and is joe six going out buying gold ( at 1,400 ) with all his dollar denominated debt obligations ??? Most ZHers can not buy gold at this price. They need their host counties currency so they can live life. And that means more dollars needed.

You want to know how and why there is PLENTY of gold to back ANY economic or financial system? It is simple, you disingenuous dipshit: it's called "revaluation".

Is there "enough" oil in the world at 20 cents per barrel? No. Is there enough at $100 a barrel? Yes (at least for now).

Really, this "not enough gold" argument is so easily discredited, and has been discredited so many times, that anyone bringing it up is just demonstrating either their profound economic ignorance, or more likely, is simply shilling and trolling for TPTB.

But I know you don't care, you are here just to spew lies and troll against those seeking honesty and the truth.

You're not paying attention. Haven't you read about all the unrest we have been seeing in the Middle East? It is going to spread, as food prices continue to rise. The corrupt governments that print will last longer than the corrupt governments that don't. Everyone will see this.

Why haven't they broken their pegs yet? Because the demonstrations haven't spread to their capitals yet. Once they do, they will be forced to break the peg, or get torn apart by the mob. The second the first one breaks that peg, everyone else will as well, not only to avoid the riots, but to try to keep from losing all of their purchasing power.

You've got a big problem. It's called normalcy bias. You think that because it hasn't happened yet that it can't. That is where you are very wrong.

But hey, feel free to die. I don't give even a fraction of a shit about you.

Commodities are a trade like everything else, the traders are in every commodity pit bidding up everything.

They can't break the peg or the banks get blowtorched, they borrowed at suppressed rates.

Stick with your " what ifs - some day soon - just around the corner " ...... They continue issuing new debt in dollars , everyone, no plans for said dollar dump, it would have happened already. They have no plans to dump the dollar cb, banks global businesses issuing dollar debt 5-10-20 years into the future, ( fact. ) Not a what if ....

Even if "they" do not plan to dump the dollar, fiscal and monetary reality will have its way regardless --- and all logic and historical precedence leads to the future decline and/or fall of the US dollar, as indeed we are witnessing in process today. Just because it does not happen overnight or in some blinding supernova burst of fiat implosion that somebody even as dull as you would have to acknowledge does not mean that the process is not already well under way.

They are a trade for some people. For others, they are life and death. When people are threatened with starvation, they WILL tear down ANYTHING that they perceive as contributing to it. The government WILL be the first stop, and the dollar peg, for those nations that have one WILL be the first thing to go. They won't have a choice. That is all there is to it.

There are no "what ifs" involved here. It's happening right in front of your face. But hey, who cares about that? Lets get out there and deliver some asshole politician's furniture, right?

By the way, how is it that you are posting now, in the middle of the day? Shouldn't you be making deliveries? You sure are doing a lot of typing for someone that is supposed to be in a truck. Don't tell me you were LYING about the number of loads you are getting each week!

This isn't a matter of caring or not caring. This is a matter of facts. The fact is that hungry people riot until they are fed. Governments fall quickly to riots fueled by hunger, as we have seen. All that remains is for rioting to spread to Asia. Then it will all be over. Faced with the certainty of collapsing today to the riots, or the possibility of collapsing tomorrow due to export sector destruction, they will chose tomorrow every time.

And it will be too late for you to do anything. You will just wake up with nothing one day. Nothing you own will be worth enough to buy ANYTHING that is traded internationally. That is, unless you are smart, and own gold/silver.

You have no idea how lucky we are that the military stepped in in Egypt. Egypt has a dollar peg, and could well have started the rout, even with its small size. It may yet. It or any of the other nations that are descending into violence while you deliver nicknacks to your local Chicago politician.

It may mean Armageddon, but I don't think so, at least, not outside of the US, or the West in general.

You keep claiming that that the drop of the dollar peg is definitely the end, but there is ZERO proof of that. All it will do is hurt their banks and their exports. We have examples where that has certainly not been the end of the world when those sectors collapsed (Iceland most recently).

You just don't get it. This isn't a choice between peace under a dollar peg and anarchy without. It is a choice between violent overthrow of the government and POTENTIAL anarchy without the dollar peg. You are counting on politicians to refrain from delaying the day of reckoning. That is never a good bet to make.

It will happen as soon as there is a serious set of violent protests in Beijing, or a large enough number of small countries with large USD reserves and/or dollar pegs.

Start reading .... China borrowed cheap using the peg. No peg by, by .... see ya, try again moron.

Go back to Paul's site .... You have no clue on what you speak of.

Some points people have raised about my estimate of local debt:1. The Chinese government claims that there is only 6 trillion RMB in local investment vehicle debt.My response: A. This widely cited figure was produced by a 6/2009 CBRC survey of the situation. The exact methodology is unclear, but informants state that the CBRC extrapolated this amount on the basis of a partial study of a few provinces.B. Other government agencies have provided conflicting and higher amounts. For example, a MOF research team uncovered "well over 4 trillion" in late 2008 (excellent Credit Swiss research even states that the 4 trillion was a YE 2007 figure).C. The CBRC finding concerns only bank loans, but total debt should also include bond issuance and accounts payable, which constitute triangular debt.D. if we sum the gross debt of just the top 50 or so LICs, we quickly arrive at gross debt of over 2 trillion (try adding the gross debt of Guangdong Highway, Guangdong Transportation Group, Chongqing Highway, Beijing Basic Construction, Shanghai Urban Construction and Development Company, Shanghai Pudong Development Co., Tianjin Urban Basic Infrastructure, Binhai Development...etc.), so the remaining 8000 or so entities only owe 4 trillion (on average 500 mln RMB each)?

2. The 11.4 trillion is too high when compared with total bank loans in various categories.My response: A. First of all, total loans outstanding at the end of 2009 was well over 40 trillion RMB, and I think it is completely reasonable to believe that nearly 1/4 of it was loans to LICs. In fact, I wouldn't be surprised that a higher share of bank loans ended up in LICs. B. Some analysts have trouble believing that such a high share of medium and long-term loans ended up in LICs. When we consider how many LICs there are and the vital role they play in the local economic strategy, it is not surprising that likely as much as 3/4 of new medium and long term loans in 2009 ended up in LICs. C. Beyond medium and long term loans, many LICs are holding companies with subsidiaries engaged in a wide range of businesses. For example, the LICs run thousands of hotels across China, and loans to these hotels would be classified as loans to the service industry. Thus, in addition to medium and long term loans and loans to infrastructure, it is perfectly reasonable for a sizable share of working capital loans, trust loans, and loans in the "other" category to end up in LICs. Again, gross debt of these entities would also include bond issuance and debt owed to each other.

No, it is clear from this thread that you are the one who doesn't know what he's talking about. All you can do when your argument has been demolished is resort to cut and paste in the vain hopes that someone, SOMEONE out there has made an argument that validates your bullshit.

You don't even realize that the Chinese don't use dollars. They don't lend dollars, they don't pay in dollars. They use YUAN. They currently print it in exchange for dollars. You really think they can't just print on their own? That they need little green pieces of paper to back their economy.

You are an ignoramus. Just stop posting. No-one appreciates what you have to say. Go elsewhere for psychological validation. We're all out here.

Things are not changing unless we have a global reset , this will mean Armageddon.

Yes, that is exactly what the parasitic central banksters and sociopathic oligarchic elite want you to believe: "It's us, or the end of the world!" But casting off the unsustainable, corrupt and evil financial and monetary status-quo would only be the end of the world for them, and they well know it, hence the massive propaganda and disinformation campaign they continue to push in the desperate attempt to deceive the masses and pretend that all is well, "recovery" is at hand, etc.

Spaulding: John Perkins called, he asked me to tell you that just because you read one of his books, if you actually did, doesn't mean you understood it (obviously). Also, I think I can safely say that he would like you to stop dropping his name too, as you apparently have no idea what you are talking about.

I wish you had the intelligence to realize what an idiot you make of yourself here.

Ah, yes, fiat is FOREVER, is that it? What about the ongoing and continuous loss of value of the US dollar, down 97% since 1930, down 50% in the last 15 years alone? What about the dozens of governments who have spent themselves into unpayable debt, followed in EACH and every case by hyperinflation, devaluation or collapse of the corresponding national fiat currency, which has wiped out the savings and livelihoods of literally billions of individuals in the Age of Fiat?

WHY will you never address these topics? Of course, we all here know exactly why: because you are just a troll who desires, or is paid, to deflect attention from, and disrupt the discussion of, the falling fiat monetary system and the time-tested value of holding the precious metals during times of economic upheaval and governmental currency and debt creation gone mad.

The other crashes did not have fiat as global reserve like this. Everyone, everything hot wired into this .. The host banks get blowtorched / by,by , gone if they de-peg. With that you get total chaos in that country. Who's going down that road ??? China , Bwaaaaaahaaaaaaaaeeeeeeheeee

It's the dollar or global reset. No in between. They can't dump the dollar, then start using euro's , yuan we have a 1 quadrillion dollar global mess.

If you could give me any thoughts how the house of Saud or China can change gears, I'm all ears. But just keep throwing stones with nothing backing up your assertion's ...

Uh-huh, what happens when protesters break into those palaces and tear anyone they find there to shreds? All the military power in the world is no use against a popular uprising. The more they clamp down, the more rise up against them. Eventually, either the whole population is annihilated, or the House of Saud falls. And when it does, we're fucked.

If you think the US can more than double oil production overnight OR stop protestors from destroying oil infrastructure in SA, you're nuts.

Commodities are traded in US Dollars, but that could easily change, especially if these trades are USD sterile, as certain posters here on ZH claim they are. Furthermore, there's a substantial market for Euro denominated debt just as well as Dollars, and ForEx pairs not including the USD does not involve the USD.

And so what if the US just sold $60bn in military hardware. They sold lots to Libya as well, and you think Gadaffi wants to trade oil with the UK and US if he retains power (not that I think he will), after these confiscatory actions? Anyway, if this revolutionary spirit spreads to SA, all bets are off.

"Did you read how they sold / pimped those countries into infrastructure deals knowing that would force them into dollar denominated debt payments for years ???"

Yep, but you, dumbass that you are, have apparently failed to notice that a larger and larger number of countries are beginning to say 'FUCK THAT SHIT'. (Excluding those that have their central banks infiltrated by GS alumni, of course.)

So, even with a trillion plus USD bitz and bytes, the MIC is finding it tougher and tougher to maintain USD financial hegemony. IE Your dream of turning the world into a nightmare is failing.

They owe, they owe so off to suck Ben's cock for more dollars they go. Sure they hate it but they borrowed long at suppressed rates via the host banking system using the peg. De- peg .... BOOM !!!

Tuesday, Mar 01, 2011

........... " By Joe Parkinson and Marcus Wright

Of DOW JONES NEWSWIRES

MANAMA (Dow Jones)--Bahrain won't change its policy of pegging the dinar to the U.S. dollar for the foreseeable future and is wary of adopting greater exposure to foreign exchange, central bank governor Rasheed Al Maraj said Tuesday, as he reiterated that unrest gripping the island kingdom hasn't affected the fundamentals of its economy.

"We will not drop the dollar peg in the foreseeable future... all our transactions are in dollars and we've always expressed our preference even before (the) EU crisis made the dollar more attractive," the central bank chief told Dow Jones Newswires in an interview.

"We also don't want to take any exposure in foreign exchange, but this is an investment strategy rather than the policy of the peg," he said.

Maraj's comments echo those of other Gulf officials who have said dollar pegs in the world's top oil-exporting region aren't at risk. " .........

All posted on ZH, all my trades, nope. Big learning curve over the years.

But I would say 85% of the trades I have tossed out on ZH have gone on 20% run's ...

DRYS, VXX, lost big, yup .... Many, many more winners. Called US Steel for weeks at $44 ....RIMM , Bravo told me I was a moron for talking up RIMM. But sure all trades look bad when I make them at the bottom, talk to me about TaTa Motors in 3- 4 months. Was told I was stupid with exxon mobil at $59 also after bp .....

Once I settle this debt or default I no longer need US dollars. Perhaps it has missed your attention that the US in buying its own debt, which means its only a short matter of time before no body else needs dollars.

What do you do when you have nothing that I want when I have food and you don't?

Try to keep up: Take any debt you want and denominate it in anything you want; creditor's prerogative. The US is a net debtor, absolutely nowhere near a creditor. So the debt may be `denominated`in USD, but if your creditor wants goat shit for payment, you`d better start feeding a truckload of exlax to your girlfriends. Your entire premise hinges on US financial hegemony continuing forever (the USD remaining as the World Reserve Currency). That is not happening because everyone knows it is inherently worthless, and if you haven't noticed that yet, then you truly are delusional. The number of places worldwide that will accept USD as payment for goods and services is shrinking. This process is accelerating, whether you are capable of realizing it or not.

Your first post was written at 13:46, which means you didn't even bother to thoroughly read the article before making the decision to tell Mr Durden how appreciative you were for it.

Or am I to assume that one of the symptoms of acute douche baggery is a peculiar propensity for speed reading, speed posting and hitting the refresh button every 5 seconds?

Please advise, so I can prescribe proper medication. I'm beginning to think that perhaps we should increase your Summer's Eve treatment, and delay the Vagisil creame until the more alarming issue is resolved.

If they are just .... assertions then bust um ' up, T. With all your sidesteps in regards to dollar denominated debt a troll of your stature who has been posting for years about a hyperinflation collapse of said dollar can crush my points.

I'm sure they all have " very smart people " giving them advice, all the printing issues / hyperinflation claims doomers harp on. So why would they continue issuing / gulping down new dollar denominated debt ???? What about the yuan or the euro ...? " ......................

Why the fuck do you use the word "doomer" so much? In over ten years of the Golden Bull market, I have yet to meet one PM holder who talks like that. You have no idea what kind of person/investor you are talking to. I live in Maui asshole. You think I wake up everyday unhappy?

Please read something of substance before you try to debate anyone here on the "facts". You continue to look so incredibly stupid as time rolls on.

Silver is in a huge bubble. Sails along at $7-$8 for twenty years. Now its at $35. But the facts about dollar denominated debt and the fact that everyone around the globe continues issuing obligation in the US currency insure they will need more dollars in the future ( servicing this debt ) its debt, they owe , they owe off to work you go. Central banks, all the fucking banks around the globe, businesses, people borrowing / needing dollars because of past obligations. This is why the EU needed swap lines ........ All the banks are fucked in the EU, sucking ben's cock.

We need dollars, we need dollars, we need dollars .........

Only way out from Ben's global dollar web is a total reset or a new basket and even then Ben's in total control.

On topic? Did you actually read this post? I didn't think so. No, you go Full Retard on some other topic. And no, I don't follow your logic on that either. Printing more dollars is BULLISH for the PM's, not bearish. And a "reset" puts gold into multi thousands an ounce. Where's your "bubble" then?

Yes, you are wrong. You are mixing way too many issues. Dominance of the dollar is NOT assured because issuers are issuing bonds. Yes, that may mean that there will be demand for the dollar in the future, as those issuers need dollars to pay principal and interest.

But it by no means implies that the dollar will continue to be dominant. In fact, it very well could be the exact opposite. Too much supply of dollars diminishes each's relative value. See the 2.5% rise in crude today alone. Issuers love to issue bonds in depreciating currencies. Their future principal payments are literally being inflated away.

Cash and bond buyers are getting crushed in purchasing power terms - cotton, wheat, ags, gold, silver, etc., etc. It's clear that QE is the only way there would be sufficient bids in UST's to meet the needed debt issuance. After two years of the financial crisis - have interest rates returned to normal? What is the federal budget deficit year in, year out? What about the Fed's exit strategy?

Wrong on so many counts...

But keep referring to yourself in the third person because you have a couple of 10% gains in AIG, X, etc. And claiming the doomers (long silver and gold, presumably) are wrong, wrong, wrong with their 100% 52-week gains in silver. It's only a bubble in silver of course, not in AIG...

So if your right, why has the dollar not crashed yet ??? The largest credit implosion in the history of finance happened three years ago.

So Ben's Pomo / Qe is keeping a lid on things , lol'...

Tell me how the world will extract itself from this issue and when, next week , next year, when .......?

Be the next guy that says " treasury / dollar dump coming soon ............. " But as I have proven they can't, why the swap lines with the EU, they could have said enough already, at that instant their banking system implodes.

Global trade / oil / commodities / forex / global finance all use said dollar. How can they extract from this obligation.

They must pay this debt with more dollars on the " way out " of said obligations , guess who has the printing press ????

And as I posted earlier ...

........... " South Africa will sell 30-year bonds in dollars, the longest-dated debt it has offered on international markets, a person familiar with the offering said.

The bond may price today at a yield about 190 basis points, or 1.9 percentage points, more than the equivalent U.S. Treasuries, said the person, who declined to be identified because the terms haven’t been set. Citigroup Inc. and Deutsche Bank AG are managing the sale, the person said. "..................

I could perhaps respond to your inquiry, if you could only for once phrase it in a complete sentence that made sense. Your grasp of syntax, grammar, and the English language in general leaves a great deal to be desired, and your very poor compositional skills do nothing but subtract from your already extremely weak arguments.

This undermedicated Balding_Smells troll is getting to be even worse in his persistent idiocy than the old JohnnyBravo was. Fully deserving of being permanently banned, if only Tyler would exercise that option here.

Huh? So the Chinese and Japanese can't dump their Dollars and denominated assets "because the EU has open swap lines with the US".

First off, what the fuck does the EU have to do with China/Japan?

Second, you assume the EU does not have Dollars or assets to make up for the rewinding of said swap lines. Please document this. Furthermore, if said swap lines were to be rewound, the US would most likely have to cover Euros as well. Please document US owned Euro assets, which guarantee your statement would result in one-way implosion as you seem to indicate.

Third, there is zero guarantee that the Dollar will still be the invoicing currency for ANY transaction in 2 years time from now. In fact, in practically all trade with the Eurozone, the Euro is the invoicing currency - which makes up about 40% of global trade (the US Dollar takes roughly the same amount - but importantly, the Dollars cut is sliding).

"Create an exit strategy- a good catalyst like Easter weekend, an announcement by an investor etc. or develop a market and grow your own bigger fool. ie – retail."

How does it feel to be the greater fool retail investor?

ZH readers are running around buying as many coins and bars as they can after a 70% run.

Meanwhile, silver will fall to $20 by the summer... because it only costs producers $5 bucks to dig it out of the ground, and the producers are now selling as much of it as they can forward, causing backwardation.

But you guys keep buying because you read that in 1997, silver went in to backwardation and the price spiked. Completely ignoring the existance of 10,000 tons of silver that are sitting at SLV, unlike in the mid 90s when there were limited stockpiles.

The maniplulation scenario of the mid 1990s can't happen now, but a completely different one is... creating rumors to drive up the price of silver and unloading high priced silver to unsuspecting retail investors like the ones populating Zerohedge.

It really is a shame - guys like tmosely even go as far as putting 95% of their assets in silver because the believe the lies and hype. They will get completely blown up.